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Fact or Fiction: Closing Your Credit Account Improves Your Score

By Sally Maison
Published: Saturday, March 6th, 2010

At first bat, closing a credit account would seem helpful towards the improvement of your score. This is because you would no longer have an account that holds balances to begin with. With credit balances out of the picture, then your score should improve, right? Wrong! Believe us when we say that this would not improve your score a bit. In fact, it would do the exact opposite – it would hurt your score.

Fact or Fiction: Closing Your Credit Account Improves Your ScoreIf you have always been responsible with purchases, then chances are; you would also be responsible with future purchases as well. That is the basic premise of credit scoring. High scores are given to cardholders who show responsible credit usage over time. This is because such good habits will likely persist. However, cardholders who do not use their purchasing power responsibly will understandably be given low scores. This is the price they have to pay for irresponsible usage of their purchasing power.

Moreover, there are also instances of people having many credit accounts. Most of the time, when these people get their reports, these would show low credit scores because they have too many accounts reported. Some of these accounts may be active and have high balances on them, which would pull down any person’s credit score. Some would be inactive, and such inactivity could also decrease scores. If you find yourself in this situation, do not make the mistake of assuming that you can fix this by closing one or several existing accounts. You would just be doing more harm than good to your credit score.

By opening those many accounts, you have already damaged your score. Closing one or several of these would do you a lot worse. For one, closing accounts would make your credit history seem premature. The calculation of your rating takes into account how old your oldest account is, as well as the average age that all your accounts hold. Closing those older accounts would then drag your score lower.

Aside from that, the act of account closure would also decrease the amount of credit available to you. In effect, debt utilization ratio would be affected significantly as well. The calculation of your FICO score entails the measurement of gap between your total credit limit and amount of credit that you use. Your FICO score increases as this gap increases. However, if you lower your credit limit suddenly by closing accounts, this gap would decrease. Your FICO score then decreases, thereby decreasing the amount of credit that is available to you.

Before you do shut down any credit accounts, think of these consequences thoroughly first. This way, you can determine if this move you are planning is indeed a wise one.

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